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Distribution of proceeds through CIRP under Insolvency Code is as per voting share

Cause Title : Small Industries Development Bank of India (SIDBI) vs Vivek Raheja, Company Appeal (AT) (Insolvency) No. 570 of 2022, National Company Law Appellate Tribunal Principal Bench, New Delhi

Date of Judgment/Order : 16th September, 2022

Corum : Justice Ashok Bhushan & Mr. Barun Mitra

Citied: 

  1. India Resurgence Arc Private Limited Vs. M/s. Amit Metaliks Limited & Anr., (Civil Appeal No. 1700 of 2021)
  2. Indian Bank Vs. Charu Desai, Erstwhile Resolution Professional & Chairman of Monitoring Committee of GB Global Ltd. & Anr., (Company Appeal (AT) Ins. No. 644 of 2021)
  3. Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Vs. NBCC (India) Ltd. & Ors., [(2021) 1 SCC 401]
  4. Union Bank of India Vs. Resolution Professional of M/s Kudos Chemie Ltd. & Ors.,Company Appeal (AT) Ins. No. 665 of 2022
  5. India Resurgence Arc. Pvt. Ltd. Vs. M/s. Amit Metaliks Ltd. & Anr.- Civil Appeal No. 1700 of 2021
  6. ICICI Bank Vs. SIDCO Leathers Ltd. & Ors., [(2006) 10 SCC 452]
  7. Technology Development Board Vs. Anil Goel & Ors.,Company Appeal (AT) Ins. No. 731 of 2020
  8. Oriental Bank of Commerce Vs. Anil Anchalia & Anr., Company Appeal (AT) Ins. No. 547 of 2022

Background

Oriental Bank of Commerce had filed a Section 7 Application under the Insolvency and Bankruptcy Code, 2016 (IBC in short) against the Corporate Debtor – M/s. Gupta Exim (India) Pvt. Ltd. which was admitted by the Adjudicating Authority and through an interim application the Bank claimed that the Bank is entitled to 6.93 % i.e. the amount of Rs. 5,64,97,893/- and as per voting share as approved by the CoC, the Appellant is entitled to 2.03% i.e. Rs. 1,65,47,078/-. The Adjudicating Authority  rejected the I.A. upholding the decision of the CoC for distribution of proceeds of the Resolution Plan as per the voting share. The Bank aggrieved by the said Order, has come up in this Appeal.

The only question which arises for consideration in the present Appeal is as to whether the Appellant-dissenting Financial Creditor is entitled to claim distribution of proceeds of the plan as per value of the security interest of the Appellant or as per the debt of the Appellant (voting share).

Judgment

The Appellate Tribunal held that Section 53(1)(b)(ii) uses expression “debts owed to a secured creditor” which is the basis for distribution in the order of priority as provided in Section 53(1)(ii). The debt owed to a secured creditor is a debt which is relatable to his claim as admitted in CIRP Process. The claim/debt of a secured financial creditor which is admitted in CIRP Process of a secured creditor is a fixed amount determined in CIRP process as reflected in Information Memorandum prepared by the Resolution Professional. The debt owed to a secured creditor is not the value of security of a secured creditor. The value of security of secured creditor is not the debt owed to a secured creditor in the CIRP Process. Section 53(1) does not contemplate distribution as per value of security of a secured creditor. 

Submission of the Appellant that he is entitled to distribution of the proceeds of the plan value as per value of security possessed by him is not in accord with the legislative scheme as delineated in Section 53(1) of the Code. The above issue has been decided by this Appellate Tribunal in M/s Kudos Chemie (supra).

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